Some Facts About The Actual Levels of SEIS And EIS Investment
HMRC recently released their periodic statistics about the levels of investment into SEIS and EIS eligible companies in the U.K. for the period ending 5th April 2016.
This data is interesting because it is coming from the horse’s mouth, as it were, about actual claims submitted for the tax breaks accorded under the SEIS and EIS rules for individuals investing into private companies in the U.K.
In the period up to the end of March 2016, 2,225 companies managed to raise a total of £170m under the SEIS scheme, an average of £76,404 per company.
In the same period, 3,285 companies managed to raise a total of £1.6bn under the EIS scheme, an average of £501,370.
So, a total of £1.8bn was deployed in that period into SEIS and EIS eligible companies across the entire U.K.
Just to put that into some sort of context, Snapchat raised a $1.8bn round on it’s own in 2016.
When you consider that SEIS investing carries 50% tax breaks on the amount invested, and up to 45% loss relief on the net investment, this implies that the amount of actual risk, in cash terms, taken by individuals investing into SEIS eligible companies across the entire U.K. could have been as low as £46m in the period covered.
This was also a snapshot of the period immediately preceding Brexit, Trump, Le Pen (nearly) and a looming U.K. General Election, so I don’t suppose the April 2016-March 2017 figures will make pretty reading by comparison.
Figures released by Companies House for the same period showed that up to 1,730,142 newly incorporated companies in the U.K. were less than 2 years old at some point in the April 2015-March 2016 period, and therefore, from an age perspective, eligible to go in search of SEIS investment.
Yet only 2,225 (or 0.13% of those potentially eligible) succeeded in raising an average of £76,404 each, out of a possible maximum of £150,000.
Does this mean that 99.87% managed to grow organically out of the blocks, without having to raise any external angel investment? Or should we be buying shares in Company Dissolution experts?
The figures suggest, on one hand, that the entrepreneurial urge has taken a huge grip in recent years, with millions of new companies incorporated, but, on the other hand, the ability for entrepreneurs to raise the necessary capital to survive, and bring their ideas to fruition remains arguably their biggest challenge. The figures suggest that the overwhelming percentage of startups will fail to raise external investment, and that their business plan forecasts should therefore be predicated on the cash they can absolutely guarantee they can lay their hands on, rather than on cash they will have to source from outside.